Additional Materials

The SEC, which is bringing its enforcement action just three weeks after the scheme began, is seeking an emergency court order to enjoin the broker from further fraudulent activity.

The SEC alleges that Lambros Ballas, a registered representative of New York stock brokerage firm Global Arena Capital Corporation, purported to announce good news regarding the companies, including that Google was buying one of them at a substantial premium. Ballas then posed as an investor on Internet message boards, touting the announcements he had fabricated. In one instance, his scheme caused the stock price to increase by nearly 80 percent within a few hours of the issuance of his phony press release.

“Ballas caused significant market disruption with his hoaxes, forcing companies to scramble to correct the public record,” said Marc Fagel, Director of the SEC’s San Francisco Regional Office. “The scheme is all the more disturbing and warranting of this swift SEC action because Ballas is an industry professional responsible for handling his customers’ brokerage accounts.”

According to the SEC’s complaint, filed in federal court in San Jose, Calif., and other court documents filed in the case:

Ballas issued a phony press release the evening of Sept. 29, 2009, announcing that Pennsylvania biotech company Discovery Laboratories had obtained approval from the U.S. Food and Drug Administration for a drug under development. Ballas then posted a message on a stock message board with a link to what he described as the company’s “official press release.” In his post, Ballas claimed to have called his “personal broker” who “says it’s been confirmed.” The next morning, Discovery Laboratories shares opened significantly higher.

The next day, Ballas issued another press release falsely claiming that IMAX Corporation had been acquired by Disney. Once again, he followed up by posting links to the phony release on a stock message board, telling other potential investors that he had bought 10,000 IMAX shares and that his broker “just called me to tell me at the crack of dawn.

Ballas continued his scheme on October 1, issuing a phony press release stating that California search engine company Local.com was being acquired by Microsoft. Ballas again followed up by posting messages and links to the Local.com release on stock message boards. In one posting he stated: “Local just bought out by Microsoft, at $12.50 per share including patent ownership.” In after-market trading, Local.com’s stock price rose nearly 80 percent.

Later that night, Local.com issued a corrective release saying that the Microsoft release had been false — there was no Microsoft acquisition. Undeterred, the next day Ballas issued another phony release, this time stating that it was Google, and not Microsoft, that was acquiring the company.

The SEC further alleges that shortly before he sent the hoax press release about Discovery Laboratories, Ballas’s brokerage clients purchased shares of the company and thus stood to profit by any price rise Ballas’s fake release created. Similarly, the complaint alleges that Ballas bought shares of Local.com stock just before he sent out the fake Local.com-Microsoft release so that he could capitalize on the fraudulent share price inflation he intended to trigger.

The SEC’s complaint charges Ballas with violations of the antifraud provisions of the federal securities laws. The SEC seeks injunctive relief, disgorgement of ill-gotten gains, and monetary penalties against Ballas.

The Commission appreciates the significant assistance of the Financial Industry Regulatory Authority (FINRA). The SEC’s investigation is continuing.